Q I am in the lucky position of having a fixed rate of 1.95 per cent and have avoided all the recent interest rate increases, but that is due to change very soon as my fixed rate ends in November. While we are not struggling yet, I’m extremely worried as I can’t afford a big rise in my mortgage along with everything else. My Bank said that I could expect to pay around 5 per cent going forward. How much extra is that and is there anything I can do to mitigate this?
A I’m sorry to hear this and I’m sure that telling you that there are thousands of people in similar circumstances will not help you at all. The last few months have been a time of financial strain and uncertainty. Now, as we look at the current situation, people are going to continue to be impacted in many ways. Up until now it was mostly tracker mortgages that were affected; however, this is likely to be a major issue for anyone coming out of a fixed rate in the next couple of months and years ahead.
You have said that you have an outstanding balance of €198,000 fixed at 1.95 per cent with 23 years remaining and the current monthly payments are €890.82 per month (pm). If interest rates were to move to 5 per cent, your repayment would be €1,208.60pm, which is a €317.78pm increase.
I don’t see any immediate change and believe interest rates will remain high for the next few years. Many experts predict rates may rise once more and then hopefully settle into a holding pattern until at least 2025. It’s very important to get advice as soon as possible, as calculating your repayments at current interest rates and what your monthly repayments are likely to become is the first step.
The bottom line is though that the rise in interest rates will ensure that everyone will be impacted in some way, and to ensure that you optimise your financial position going forwards, a review of your entire financial circumstances is required now more than ever.
So, what can you do?
Remember, just because interest rates are rising doesn’t mean there’s no point in shopping around. It and the possibility of recession makes it even more important. Get market-based advice from a broker and you will at least confirm you have the best rate available to you. If switching is best for you, then there are great additional incentives available now.
If you’re having financial difficulties, it makes sense to prioritise your mortgage repayments, along with secured loans, gas and electricity, hire purchase and taxes. These come before other debts because you can either be imprisoned for them or you can lose your home more easily than with other debts. Losing your home is not a good way to cut your mortgage costs!
If you have a small, short-term loan with higher repayments, maybe you could concentrate on clearing that before your mortgage repayment increases. This could help you in two ways. It will save you on interest due on the loan and the loan repayment could then be used to cover the increase or maybe even overpay your mortgage instead.
If you can’t afford your mortgage even after making cutbacks elsewhere, you should immediately contact your lender. It’s very clear from former debtors and debt advisers that most of the time it works out well for you to communicate openly and honestly with your creditors, and as quickly as possible. Tell your lender that you’re seeking debt advice from MABS or a PIP – and do so straight away.
The Money, Advice and Budgeting Service is an independent body that may support you and provide you with information regarding these concerns.
I also recommend looking at your options and discussing them with a qualified financial broker.
Get the conversation going, it may be the most important action you can take.
This article aims to give information, not advice. Always do your own research and/or seek out advice from a Financial Broker before acting on anything contained in this article.
Warning: Your home or property may be repossessed if you do not keep up repayments on your mortgage or any loan secured on it.